March 2016 – Sydney CBD Strata & Office Market Update

14 March, 2016 / Vanessa Rader and Anthony Harris

2015 has been a strong performing year for the Sydney CBD office market. A combination of low vacancies and high take up has fuelled some improvement in the leasing market as well as low interest rates and foreign interest putting downward pressure on investment yields.

Supply additions have shown their first period of high results which will be a regular theme for this market. For the strata market, volumes have been limited but capital value have shown outstanding results, growing to a new high across the total market at $6,237/sqm representing an 8.15% increase on 2014 results.

The volume of strata office sales in Sydney CBD for 2015 is slightly down from 2014 results with this period recording 148 sales with a total volume of approximately $125 million. This volume is down 9.05% and represents just shy of 20,000sqm of office space. The stand out result however being the strong uptick in capital values over the last two years. The current total average capital value is $6,237/sqm which is 8.15% up on last year or more positive being the increase of 22.48% over the past two years. During 2015 the average sale price increased to $845,000 from $770,000 during 2014 which is indicative of this large increase in value and the appetite by purchasers to buy larger or multiple suites rather than individual small suites particularly given the cost of funding being currently favourable.

Investment activity during 2015, while slightly behind the 2014 result shows similar trends in the distribution of sales by precinct. The only market showing significant change being Midtown, with only $17.09 million transacting during 2015, this is down 54.13% since last year. The average size within Midtown has also decreased compared to 2014 representing just 73 sqm. The Western Corridor was the market to benefit from this reduction resulting in the volume of sales to increase from $45.19 million in 2014 to $56.45 million in 2015 and an average sale price of $1.485 million or 231 sqm. The Southern precinct historically has a small share of strata office sales due to the limited stock in this
location; however this too has seen an increase, representing 15 sales or $11.07 million up 64.07% on last year. The Core has shown its third consecutive decline in volume of sales, this more traditional CBD strata office location has accounted for $40.29 million of sales across 59 transactions.